August 31, 2010
Real Estate Investing | How To Avoid Negative Equity In Real Estate Investment Financing
Real Estate Investment Financing is simply industry jargon for a real estate investment loan. In a bad property market where rental yields are low, the most dreaded word that you can say to a real estate investor is negative equity. So what is negative equity? It is a situation which arises when the foreclosed value of your property is less than the price that you paid for it and in certain states like in New York, the mortgagee (the bank) can then bring a deficiency action against the owner to reclaim the difference.
This article will therefore go on to examine three ways to prevent a negative equity situation in the longer term.
The first key to preventing yourself from a negative equity situation is always look at the downside of any investment and analyze the rental yield of your property in a bad year. In real estate investment terms, this means that you look at the average rental yields of your property in the lean years to see if it drops below your monthly instalment for your mortgage repayment. I hate guessing, so the best way is to go to a real estate agent and ask them to generate a graph and then do your own analysis to see if your property rental would go below the amount that you are paying for your monthly mortgage instalment.
The second factor to consider is the price that you pay and the monthly instalments. Many people during a property boom, tend to overpay for their property and as a result, when the economy turns around, the changes of a negative equity situation arising is quite possible. Excessive exuberance in the real estate market like in the stock market can make you more likely to buy the property at an all time high.
The third factor is the rebound of a sector. Spend some time looking at statistical data. Which property sectors rebound more quickly than others in response to a good market and economy? By choosing your property investment right, even if the market is bad, your chances of a turnaround are better than the national average. This is also an application of the common adage of “making the best of a bad situation” in real estate investing.
In conclusion, by spending some time to consider the three above contributing factors and spending some time to analyze a property investment can save you much heartache later and prevent you from falling into a negative equity Real Estate Investment Financing situation.
Copyright 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author’s information with live links only.)
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8 Comments on Real Estate Investing | How To Avoid Negative Equity In Real Estate Investment Financing »
April 5, 2011
Finest Real Estate Info » Blog Archive » Recognize the 5 Stages of a True Investing Business – Avoid the … @ 12:43 pm:
[...] profitablepartnerships wrote an interesting post today onRecognize the 5 Stages of a True Investing Business â?? Avoid the …Here’s a quick excerptIt is vital that as you move forward in your real estate investing, you avoid the “burnout and noise” from trying to undertake too many of these other opportunities. What you will notice is that if you put your focus, time, … [...]
Jay S @ 7:32 pm:
Congratulations on researching before you make the jump! You can invest in real estate using other people's money whether or not you are a real estate agent. The only advantage the license gives you is access to a multiple listing service. You can also choose not to get your license and have real estate agents bring deals to you – FREE! They only get paid when you close on a deal. Seller financing is one of our specialties. When a seller financing deal happens, you can raise capital or borrow money to invest, and then when you sell or rent the property, you make enough to pay back what you owe and keep a profit. All with NO money out of your pocket. (that's a simplified outline but that's how seller financing works). Keep doing the research, but focus on what's for sale and what's selling in the area you're interested in. Knock on the doors, ask about the properties. The more you know about the area homes, the better prepared you will be to evaluate whether or not a deal is a good one or not.
April 27, 2011
steve @ 8:57 pm:
why , why ,why are proponents of real estate investing over stocks always applying leverage to their analysis while leaving the stock analysis without the leverage. News flash !! You can borrow to buy stock investments as well ! You can borrow 2 times and in some cases three times your original investment.So, now using your above example, 100k borrows, lets say another 200k for stocks(after all you are borrowing 10 times for real estate example) Now run your numbers and see how you make out.
I have repeatedly heard the old school, archaic mantra for real estate investing and it is not what it seems . Funny, richest men in the world have acheived wealth by share ownership of public companies
May 18, 2011
Wagner Leite @ 7:18 am:
Good information on real estate investing.
May 26, 2011
railroad dave @ 4:48 am:
so you would rather cut SS so grandma starves to death , homeless , under a bridge ? i disagree with the zionist agenda of greed wanting to make all these cuts . i think we need to bring back revenue . i think we need to bring back the pre reagan era fed tax rates for corporations and the rich .
June 19, 2011
John Shafi @ 3:11 am:
Hello
I have started a small Real Estate investing group. I looked up Real Estate Syndacite and found your meeting minutes. I have just about completed our first transaction on a 12-plex in Nova Scotia. The current make up of our corporation has made financing incredibly difficult to get happening. I would be interested in discussing these types of things with you further. Please email me to exchange ideas with, if you are interested.
Best Regards
John
September 7, 2011
Biancoa @ 10:03 pm:
you can be an investor and a real estate agent. if you buy a property as investment and you are an agent, it's yours. Your company will not let you invest their money unless you work at some kind of investment company. Also, if you are poor, you do n't want to be investing your money in real estate, you will want to be investing OTHER PEOPLE's money in real estate.
Contact me if you want to find out more.
-Angela
http://www.ratraceclub.com
November 6, 2011
Biancoa @ 7:31 pm:
you can be an investor and a real estate agent. if you buy a property as investment and you are an agent, it's yours. Your company will not let you invest their money unless you work at some kind of investment company. Also, if you are poor, you do n't want to be investing your money in real estate, you will want to be investing OTHER PEOPLE's money in real estate.
Contact me if you want to find out more.
-Angela
http://www.ratraceclub.com